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Fachbereich Wirtschaftswissenschaften, Universität Frankfurt a. M. >
Working Paper Series: Finance and Accounting, Universität Frankfurt a. M. >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/23444
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| Title: | | Mutual versus Stock Insurers : Fair Premium, Capital, and Solvency  |
| Authors: | | Laux, Christian Muermann, Alexander |
| Issue Date: | | 2007 |
| Series/Report no.: | | Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting 180 |
| Abstract: | | Mutual insurance companies and stock insurance companies are different forms of organized risk sharing: policyholders and owners are two distinct groups in a stock insurer, while they are one and the same in a mutual. This distinction is relevant to raising capital, selling policies, and sharing risk in the presence of financial distress. Up-front capital is necessary for a stock insurer to offer insurance at a fair premium, but not for a mutual. In the presence of an owner-manager conflict, holding capital is costly. Free-rider and commitment problems limit the degree of capitalization that a stock insurer can obtain. The mutual form, by tying sales of policies to the provision of capital, can overcome these problems at the potential cost of less diversified owners. |
| Subjects: | | ownership structure insurance owner-manager conflict capital default |
| JEL: | | G22 G32 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Working Paper Series: Finance and Accounting, Universität Frankfurt a. M.
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